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Monday, May 17, 2010

Should auto dealers be punished for overselling?

Let's face it: the car dealers have never been high on reputation. In the past few years, following the supposed leadership of Toyota dealers, some have reformed. But just like a tiger will never become a true vegetarian, one cannot and should not expect car dealers to plant flowers when selling cars.

I am having significant difficulties deciding on a position on this matter.

Here’s the story from the Star:

Leonard walked into the dealership wanting to replace the tires on her 2004 car.

By the time she left she was on the hook for a spiffy, black 2010 Mazda6 sedan at the eye-popping price of almost $66,000, after taxes and the value of her trade-in vehicle.

That’s $25,000 more than she should have paid, according to Ontario’s auto regulator.

She says “Moe,” the salesman, talked fast. The numbers whizzed by and before she knew it she had bought the 2010 model.

“I was overwhelmed and confused and I soon felt like I had been mistreated,” the 56-year-old woman said in an interview from her small, subsidized apartment in the town 85 km northwest of Toronto.

The Ontario Motor Vehicle Industry Council, which regulates new and used car dealers, took action after she complained. Its investigation found she should have paid about $41,000 for the vehicle — which wasn’t even new.

“In my eight years here, I haven’t seen a case like this,” said Carey Smith, the regulator’s director of investigations. “The deal was way over the top regarding pricing.”

Smith has charged Mazda of Orangeville and two senior employees with breaching Ontario legislation that protects consumers. The dealership could face a fine of up to $250,000 if found guilty.

Kien Trung, business manager at Mazda of Orangeville and one of the employees facing charges, said he did not treat Leonard improperly or make any big profits in the deal in late December.

“We didn’t do anything wrong in the case of this transaction,” said Trung. “We made a little bit of money on the deal. I guess she was not happy with it.”

In promotional messages, the dealership says it treats customers “with dignity and respect.”

But Smith said in Leonard’s case, the store and two employees used several tactics to unfairly jack up the price.

“They put a list price of a new vehicle on the model but it was a demonstrator that the dealer used with about 6,000 kilometres on it,” he noted.

Mazda Canada lists the base price of the new sedan at $39,969 on its national website, but the dealership allegedly posted a sticker of $45,846 on the car.

Smith said the salesmen also billed Leonard, who is intellectually disabled, about $4,500 for a “protection package” that included fabric guarding, rust and sound proofing and window etching. Other dealers charge about a third of that for the same items, he said.

Furthermore, Smith said Leonard, who is unemployed, should not have qualified for a loan from the dealer because her monthly income including a disability pension is less than $2,000.

But Smith added that didn’t stop the two employees from offering an eight-year loan that will result in about $16,000 in financing costs for her, including a final balloon payment of $7,000.

Mazda of Orangeville says in a promotional message for phone callers that owning “your dream vehicle might be easier than you think.” The message goes on: “If you are a great person with not-so-good credit, we have you in mind.”

Leonard said she originally came to the store to replace the tires on her 2004 Mazda3 and didn’t even want to buy a car.

“I wished I had never walked into the place,” she said. “I’ve had a lot of trouble keeping up with these payments. The stress has been terrible.”

Leonard described the salesman at the dealership as “slick” and the process mesmerized her. But after signing a contract and driving the vehicle away, she checked prices at other Mazda outlets.

“The differences were shocking,” she said. “I felt very disappointed how I was treated.”

The regulator charged the dealership; Trung, 38, of Vaughan; and sales manager Mohammed (Moe) Shaikh, 46, of Mississauga with “engaging in unfair practice by making an unconscionable representation,” contrary to the provincial Consumer Protection Act.

Apparently, the dealership also received a D+ rating on a scale from A+ to F since January 2008, based on six complaints. The owner fired the salesman and the manager who made the sale, but to no avail: In a rare move (first time in two decades), Mazda terminated the dealership, which can no longer sell new cars. It then transpired that the fired manager co-owned another dealership with the owner.

A Mazda dealer, who fired his general manager for allegedly selling a car for $25,000 more than its value, owns an area Suzuki store where the same former senior employee is a partner.

Sunny Bains, owner of Mazda of Orangeville, confirmed Monday his ex-manager “Moe” Shaikh is a vice-president and partner at Bains Suzuki of Pickering but he won’t be much longer.

“Absolutely, that will be ending very soon,” Bains said in an interview.

My difficulties arise from the fact that it is the buyer’s responsibility to shop around and inform themselves. At the same time, my heart goes out to this “intellectually challenged” woman. People change their mind often after a sale. The industry even has a term for it: “buyer’s remorse”. If prices and commissions are fixed, what is the point in having independent dealers? Shouldn’t there be dealers working on a salary then?

Car dealerships are not over-regulated like lawyers and did not "regulate" out of the most lucrative fields the competition (paralegals).

Then again, with all the big banks getting “bailed out”, perhaps it is now the many’s turn.

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